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economics 25 multiple choices

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solution..


Question

1. A person who studies macroeconomics encounters many different types of growth rates. One of these growth rates of the value of a price index. This type of growth rate is called an

 

 

a. economic growth rate

 

 

b. exchange rate

 

 

c. inflation rate

 

 

d. interest rate

 

 

2. A component of GDP that tends to change very drastically during economic recessions, and is often responsible for most of the severity of a recession, is

 

 

a. Consumption

 

 

b. Investment

 

 

c. Government purchases

 

 

d. Exports

 

 

e. Imports

 

 

3. According to the National Bureau of Economic Research, the most recent U.S. recessionbegan near the end of 2007. Since the preceding recession ended near the end of 2001, there were six years between these two recessions. Based on economic data from the last 40 years, this interval between recessions is _______.

 

 

a. Much shorter than average

 

 

b. Fairly close to the average

 

 

c. Much longer than the average

 

 

d. A record: it’s the longest interval the US economy has had between recessions

 

 

e. A record: it’s the shortest interval the US economy has had between recessions

 

 

4. In the U.S economy, the demand for loanable fundscomes mostly from _______, who use these funds mostly to finance

 

 

a. Households, home purchases.

 

 

b. Firms, investment spending

 

 

c. Units of government, their budget deficits

 

 

d. Households, purchases of consumer durable goods

 

 

e. Firms, fringe benefits payments

 

 

5. A bank made a loan to a manufacturing firm, in dollars. The loan had a fixed nominal interest rate of 5 percent. The average annual inflation rate over the term of the loan turned out to be 2 percent. Which of the following statements about this loan is correct?

 

 

a. Over the term of this loan, the purchasing power of a dollar fell at an average rate of approximately 3% per year.

 

 

b. The average annual growth rate of the real value of the dollars repaid, relative to the real value of the dollars lent, was approximately 3 percent

 

 

c. The real interest rate on the loan turned out to be approximately 7 %.

 

 

d. If the bank had expected the average annual inflation rate, over the loan’s term, to turn out to be 3%, then it was disappointed with the loan’s outcome.

 

 

e. If the firm had expected the real interest rate on the loan to be 2%, then it was pleased with the loan’s outcome

 

 

6. In microeconomics, you learned that economists think of the main item that adjusts to clear the market for any particular as the unit price of that good. Economists often think of the levels of national saving and investment as being determined in a single market. They think of the item that plays the role of the unit price, in this market, as

 

 

a. The overall price level

 

 

b. The actual inflation rate

 

 

c. The nominal interest rate

 

 

d. The real interest rate

 

 

e. The exchange rate

 

 

7. In the foreign exchangemarket, the price of a U.S. dollar rises from .67 euros to .75 euros. Other things equal, ______

 

 

a. The value of a European version of the consumer price index is likely to fall.

 

 

b. European currency has appreciated against U.S currency.

 

 

c. Goods imported from Europe will become cheaper in the United States

 

 

d. The price of a euro, in dollars, has fallen from approximately 1.33 euros to approximately 1.25 euros.

 

 

e. A U.S produced car that formerly cost 16,000 euros in Europe now costs 20,000 euros.

 

 

8. To calculate the value of the Consumer Price Indexfor a particular month, you must calculate…

 

 

a. The market value, using prices from that month, of a basket of goods and services based on the composition of consumer spending during the month.

 

 

b. The market value, using prices from that month, of a basket of goods and services based on the composition of consumer spending during some fixed base period.

 

 

c. The market value, using prices from a fixed base period, of a basket of goods and services based on the composition of consumer spending during the base period

 

 

d. Both a and c

 

 

e. Both b and c

 

 

9. If the government runs a budget deficitduring a year, then…

 

 

a. Public saving for the year is negative.

 

 

b. It must increase taxes, during the year, to raise the funds needed to cover the deficit.

 

 

c. At the end of the year, the national debt will be equal to the amount of the deficit.

 

 

d. Government consumptions spending exceeds government investment spending by the amount of the deficit.

 

 

e. The money supply increases by the amount of the deficit.

 

 

10. In the modern U.S monetary system, the ______ is responsible for making currencyavailable to the public. This currency has value, and can be used make payments, because_____

 

 

a. Federal Reserve System, the Fed will convert it into gold, at a fixed rate, on demand.

 

 

b. Federal Reserve System, the Fed manages the supply of currency to limit the amount in circulation.

 

 

c. U.S. Treasury Department, the Treasury will convert it into gold, at a fixed rate, on demand.

 

 

d. US Treasury Department, the Treasury manages the supply of currency to limit the amount in circulations

 

 

e. None of the items above is correct

 

 

11. If a county is running a trade deficit, then_____

 

 

a. The market value of its exports exceeds the market value of its imports.

 

 

b. Its domestic spending exceeds its domestic income

 

 

c. It is lending to other countries, or buying assets from foreigners, or give foreign aid.

 

 

d. Its national saving exceeds its private investment.

 

 

e. All of the above items are correct.

 

 

12. The following list gives the values of a number of items form the National Income and Product Accounts. What is the value of Gross Domestic Product (GDP)?

 

 

Exports 100 Private Saving 550

 

 

Private Investment 700 Consumptions 3000

 

 

Taxes (net of transfers) 250 Imports 300

 

 

Government Purchases 300

 

 

(consumption and investment)

 

 

a. 4000

 

 

b. 5200

 

 

c. 3800

 

 

d. 4350

 

 

e. 4100

 

 

13. When the US government calculates GDP using the total-spending approach, household spending for college tuition is categorized as consumption spending. Many economists argue that it really should be categorized as ________ spending, because

 

 

a. Investment, a college education increases a student’s human capital.

 

 

b. Government, U.S colleges also receive substantial financial support form the government.

 

 

c. Investment: colleges use tuition funds to finance construction, as well as purchases of equipment for teaching and research.

 

 

d. Government, most spending for college tuition is financed by government loans.

 

 

e. Investment; colleges use most of their tuition revenue to pay faculty salaries, rewarding their human capitals

 

 

14. Imagine a barter economy in which people trade many different goods for many other goods, but merchants post the prices of the goods they sell in terms of a single reference good. This system works because everyone keeps track of the unit price of each good in terms of the reference good. This economy has______ but not_________.

 

 

a. Commodity money, fiat money

 

 

b. A pattern of trade, a coincidence of wants

 

 

c. A unit of account, a medium of exchange

 

 

d. Money, currency

 

 

e. A store of value, a unit of account

 

 

15. If real GDPfor a particular year is higher than nominal GDPfor the same year, then we know that…

 

 

a. The average level of prices fell during the year.

 

 

b. Total production is higher, in that year, than it was in the base year.

 

 

c. The value of the GDP deflator for that year exceeds 100

 

 

d. The average level of prices was lower, in that year, than it was in the base year.

 

 

e. Nothing; the definition of real GDP implies that this should be true every year.

 

 

16. During the last 65 years (roughly, the period after World War II), the averageU.S. unemployment rate (the usual estimate of the “natural rate” of the unemployment) has been closet to ____ percent.

 

 

a. 3

 

 

b. 6

 

 

c. 9

 

 

d. 12

 

 

e. 15

 

 

17. Most macroeconomists believe that a country cannot experience persistently high inflationunless the country’s____

 

 

a. Government has allowed the country’s money supply to grow at an excessively rapid rate.

 

 

b. Firms have colluded with each other in order to drive up prices.

 

 

c. Households have spend too much of their income and saving too little.

 

 

d. Government has run excessively large budget deficits financed by issuing government bonds

 

 

18. The U.S unemployment rate is calculated as fraction, with a numerator and a denominator. The value in the denominator is closets to____.

 

 

a. The total U.S population

 

 

b. The total U.S population, excluding people in the armed forces.

 

 

c. The total U.S population, excluding people in the armed forces, children under 16.

 

 

d. The total U.S population, excluding people in the armed forces, children under 16, full-time students, and retired people.

 

 

e. The total U.S. population, excluding people in the armed forces, children under 16, full-time students, and retired people, and other people who are not actively looking for work

 

 

19. Which of the following expenditures would not be considered a U.S investmentexpenditures, for the current year, according to the definition used by the U.S. government when it calculates GDP using the total-spending approach?

 

 

a. A U.S computer manufacturing company builds 1000 computers this year, but has not sold them by the end of the year

 

 

b. A US delivery company buys a new delivery truck this year that was manufactured in Japan

 

 

c. A US automobile manufacturer buys robotic equipment for its assembly line; the equipment was manufactured in the United States this year

 

 

d. A U.S resident buys $100,000 worth of stock in a US startup software firm that began operating this year.

 

 

e. A U.S computer manufacturing company builds 1000 computers this year, but has not sold them by the end of the year

 

 

20. During the last 65 years, U.S government purchases (consumption and investment) have averaged roughly 20 percent of GDP, and this ratio has shown little tendency to rise or fall overtime. But many economists argue that the relative size of the U.S government has increased substantially during this period. The basis for this argument is the fact that _____ are not included in government purchases, and they have increased substantially during this period.

 

 

a. Government transfer payment

 

 

b. National defense expenditures

 

 

c. State and local government purchases

 

 

d. Wages and salaries of government employees

 

 

e. Payments to government contractors

 

 

21. The most common way for the U.S money supply to increase is for….

 

 

a. The U.S. Treasury to issue additional money to finance federal government spending.

 

 

b. The U.S. Treasury to lend newly issued money to the Federal Reserve System, which uses it to make loans to private banks

 

 

c. The Federal Reserve System to reduce its reserve requirements, allowing banks to take money out of their reserves and make it available to the public.

 

 

d. The U.S. Treasury department to write checks drawn on the Federal Reserve Banks, releasing money from those banks into the economy.

 

 

e. The Federal Reserve System to use newly-issued money to purchase U.S. Treasury securities from private financial institutions.

 

 

22. At the beginning of a 30- year period, two countries had the same average standard of living. The two countries also had the same average real GDP growth rate during the period. At the end of the period, however, the average living standard in the first country was much higher than in the second country. The most likely explanation for this observation is that

 

 

a. The first county devoted a much higher percentage of its GDP to investments

 

 

b. The second country experience much slower technological change.

 

 

c. The second country allowed its money supply to grow at a much faster rate

 

 

d. The population of the second county grew at a much faster rate.

 

 

e. The first county had a much more effective educational system.

 

 

23. One of the reasons Gross Domestic Product is measured in dollars, rather than in physical units, is that____.

 

 

a. We have no reason to be interested in changes in the physical amount of production.

 

 

b. We are interested in domestic (US) production, and only domestic goods are sold for dollars.

 

 

c. If the dollar value of our production increases, then our living standards have increased, even if our physical production has not changed

 

 

d. Measuring GDP in dollars allow us to include financial assets in GDP, not just goods and physical assets

 

 

e. Different goods are measured in different physical units ; we don’t have any common physical unit that would allow us to add them up in an economically meaningful way.

 

 

24. Although checking accounts (demand deposits, etc.) are created and administered by private banks, the government has considerable influence on the total value of the checking account balances in the economy. The main source of this influence is that fact that____.

 

 

a. The Federal Reserve System imposes fractional reserve requirements on checking accounts, and it controls the supply of money banks can use as reserves

 

 

b. The treasury department places an upper limit of the checking account balances of each bank. The limit is based on the population in the bank’s area.

 

 

c. State government banking agencies imposes taxes based on banks’ total checking account balances; the tax rate increases sharply as a bank’s deposits increase.

 

 

d. A bank remains eligible for federal reserve check-clearing services only if it keeps its total checking account balances below a cap established by the Fed based on the volume of economic aticivty in the bank’s area

 

 

e. The Federal Deposits Insurance Corporation (FDIC) will only covers a bank’s checking accounts if its keeps its total checking account balances below a cap based on the total federal income tax payment of its depositors.

 

 

25. Oil-producing country A increases its oil production this year, sells the oil in the world market, and uses the funds to buy consumers goods from foreign countries. Oil producing country B increases its oil production, this year, by the same amount. It sells the oil in the world market and uses the funds to buy capital goods from foreign countries. Other things equal, which country will experience the biggest increases in GDP in later years.

 

 

a. Both countries will experience the same increase in GDP this year, but county B probably will experience bigger increases in future years.

 

 

b. Country B will experience a bigger increase in GPD this year, but country A probably will experience bigger increases in future years

 

 

c. Country B, in both cases

 

 

d. Both countries will experience the same increases in GDP this year and in future years

 

 

e. Neither country will experience an increase in GDP this year, but country B probably will experience bigger increases in future years.

 

Paper#55903 | Written in 21-Jan-2016

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